Fibonacci Retracement — Trading Wiki

Publisher and editorial transparency

Published by TradeHQ. Site creator: Anuga Weerasinghe. This page has no recorded editorial review date; the About page explains the site's editorial approach.

What Fibonacci Retracement means

Fibonacci retracement is a technical analysis tool using horizontal lines at key ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) to indicate potential support and resistance levels.

In depth

Fibonacci retracement is a technical analysis methodology that uses horizontal lines drawn at specific percentage levels derived from the Fibonacci sequence to identify potential support and resistance zones where price may reverse during a pullback within a trend. The tool is constructed by identifying a significant high and low point on a chart and dividing the vertical distance by the key Fibonacci ratios: 23.6%, 38.2%, 50%, 61.8%, and 78.6%. The mathematical foundation traces back to the 13th-century Italian mathematician Leonardo Fibonacci, whose famous sequence (1, 1, 2, 3, 5, 8, 13, 21...) produces ratios that appear throughout nature, architecture, and — many traders believe — financial markets.

Ratios of successive Fibonacci numbers approach about 61.8% as the numbers grow; they are not exactly 61.8% for every pair. Chart users also include 50%, which is a convention rather than a Fibonacci ratio. Extensions beyond 100% (127.2%, 161.8%, 261.8%) are used to project profit targets during trending moves. These extension levels help traders determine where a trend might exhaust itself after a breakout. Time-based Fibonacci analysis (Fibonacci time zones) is a more advanced application that attempts to predict when reversals might occur.

Key points

• Key levels: 23.6%, 38.2%, 50%, 61.8%, and 78.6%
• The 61.8% golden ratio is the most watched retracement level
• Combining chart tools does not establish a success probability

Why it matters when you are learning

Calculate the levels from a clearly identified high and low, then compare how changing those anchors changes the chart. A Fibonacci ratio alone does not establish a reversal probability.

Practising Fibonacci Retracement on the simulator

Use the simulator as an observation exercise for Fibonacci Retracement. The main feature to identify is: Key levels: 23.6%, 38.2%, 50%, 61.8%, and 78.6%. A second feature to compare is: The 61.8% golden ratio is the most watched retracement level. A third feature to note is: Combining chart tools does not establish a success probability. The presence of the concept is not a prediction or a trade signal. Educational simulation only — not financial advice.